Knight-Swift Transportation - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered modest top-line growth and sharp profitability improvement vs. Q1 2024: revenue $1.82B (+0.1% YoY), GAAP EPS $0.19 (vs. $(0.02) prior-year), Adjusted EPS $0.28 (vs. $0.12), with consolidated OR improving to 96.3% and Adjusted OR to 94.7%.
• Management lowered Q2 2025 Adjusted EPS guidance to $0.30–$0.38 from $0.46–$0.50, citing tariff-driven uncertainty and weaker seasonality; Truckload sequential growth expectations eased, while LTL revenue growth guidance was raised but margin expectations tempered (low 90s OR).
• Key drivers: Truckload rate per mile turned positive YoY for the first time in 10 quarters; cost/mile fell; USX achieved its first quarterly operating profit post-acquisition. LTL shipments grew 24% YoY on network expansion, though start-up and integration costs suppressed margin; March LTL Adjusted OR reached 90.6% with ~30% shipment growth.
• Estimates: S&P Global consensus for Q1 2025 and Q2 2025 EPS/revenue was unavailable via our data connector at the time of analysis; comparison to Street estimates cannot be provided. We benchmarked vs. prior company guidance where relevant (see Guidance Changes).
• Potential stock reaction catalysts: reduced Q2 guide and tariff uncertainty vs. improving cost discipline, Truckload rate inflection, and accelerating LTL volumes.

What Went Well and What Went Wrong

• What Went Well

  • Truckload fundamentals: Revenue per loaded mile rose 1.5% YoY (first YoY increase in 10 quarters); Adjusted OR improved 170 bps to 95.6%; USX achieved first post-acquisition quarterly operating profit. CEO: “Our revenue per mile for the quarter was up year-over-year for the first time since the third quarter of 2022… We are also pleased to see the U.S. Xpress trucking business achieve its first quarterly operating profit post-acquisition”.
  • LTL growth: Revenue ex-FSC up 26.7% YoY on 24.2% shipment growth; March run-rate showed 30% shipment growth and 90.6% Adjusted OR as density improved.
  • Logistics and Intermodal progress: Logistics revenue +11.8% YoY, gross margin to 18.1%, Adjusted OR improved 160 bps to 95.5%. Intermodal OR improved 360 bps to 102.0% with load count +4.6% YoY.

• What Went Wrong

  • Tariff/macro headwinds: Management cited “toxic tariffs” and fluid trade policy dampening March seasonality, prompting withdrawal of multi-quarter guidance and a wider, lower Q2 range.
  • LTL margin pressure: Despite strong shipments, LTL Adjusted OR deteriorated YoY to 94.2% (vs. 90.0%) due to start-up costs, early-stage operations in new terminals, and lingering costs from DHE integration.
  • Sequential normalization from Q4: Consolidated OR/Adjusted OR worsened sequentially from 95.8%/93.7% in Q4 2024 to 96.3%/94.7% in Q1 2025 as Truckload seasonality and early-quarter weather weighed on results.

Transcript

Operator (participant)

Good afternoon. My name is Aaron, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation First Quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. If at any time during this call you require immediate assistance, please press star zero for the operator. Speakers from today's call will be Adam Miller, Chief Executive Officer; Andrew Hess, Chief Financial Officer; Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Brad Stewart (Treasurer and SVP of Investor Relations)

Thank you, Aaron. Good afternoon, everyone, and thank you for joining our First Quarter 2025 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions, and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last one hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we are not able to get to your question due to time restrictions, you may call 602-606-6349.

To begin, I will first refer you to the disclosures on slide two of the presentation and note the following: This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1, A, Risk Factors, or Part one of the company's annual report on Form 10-K filed with the United States Securities and Exchange Commission for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Before we get into the slides, I will hand the call over to Adam for some opening remarks.

Adam Miller (CEO)

Thanks, Brad, and good afternoon, everyone. You know, with all the uncertainty in the market, I thought it would make sense to maybe open up the call with some high-level remarks regarding the first quarter as well as the current market. I will turn it over to Brad and Andrew to cover the remaining slides. Here to kick it off, you know, early in the first quarter, several indicators, both internal and external, were pointing to positive momentum in the truckload market. Our early bid season results were positive, and volumes remained healthy following the fourth quarter. In February, severe weather in areas of the country not well positioned to handle snow and ice contributed to a slowdown in volumes. We were expecting a nice seasonal volume rebound in March.

However, talks of tariffs and the fluid trade policy spurred a more cautious tone among shippers that brought a pause to the momentum in the market. The increased uncertainty among shippers and growing concern among consumers resulted in lower volumes and an absence of the typical seasonal build in March. This has also impacted current rate negotiations in the truckload bid season. We are still achieving increases in the low to mid-single-digit % range. However, we are not seeing the increases build like we had originally anticipated the bid environment would play out. Further, the progress we are making on contractual rates may not be as visible in our second quarter overall realized revenue per mile if the market experiences a lull in volumes and the spot market remains weak.

We are staying close with our customers as the situation unfolds, and they are generally expressing a few different approaches at this point. Some are pressing forward with little change, needing product as they see strength in their underlying sales. Some have already cut back or are in the process of cutting back on purchases, mostly centered around China, while still others are in wait-and-see mode where they're drawing down inventory to support sales in the near term. At this point, our customers are expressing more concern around cost impacts of tariffs and less concern regarding demand from their customers. These strategies can create negative disruptions in volume in the near term. However, if consumer spending remains steady, goods will have to move at some point, and that may create opportunities for carriers that are proven to be nimble with scale, like many of our Knight-Swift truckload brands.

We recognize our customers' plans can change as clarity develops, so we are focused on controlling what we can control. For example, we are tightening our equipment fleet by selling underutilized tractors and trailers that will lead to lower depreciation and greater utilization of our remaining assets. We are also investing in new technology and raising the intensity around our safety and claims and reducing overhead costs. We need to have the most efficient cost structure possible in order to be prepared for what could be a volatile environment in the near term. With all that being said, during the first half of April, market conditions have largely been stable with where we exited the first quarter, but there is a wide range of possible paths forward from here.

There could be a lull in volumes as shippers work to adjust supply chains, or there could be a pull forward anticipation of a return of reciprocal tariffs. Changes in trade policy could create the need for shippers to react quickly in managing inventory levels, which could benefit the fast, flexible nature of truckload service. On the other hand, concerns of recession risk could cause shippers to trim inventories and to aggressively prioritize the lowest short-term cost over all other factors. In light of the unusual uncertainty, we feel we must adjust our approach to providing near-term earnings guidance. Starting with this report, we are updating our guidance for the second quarter, and we'll hold off on introducing guidance for the third quarter until enough clarity develops to support a return to two quarters of forward guidance.

Business conditions for the second quarter are also uncertain enough that we are providing a wider range than our normal practice, and with risk appearing skewed to the downside in the near term, we are taking a somewhat more conservative approach as well. Even in an uncertain environment, we continue to improve on costs and collaboration across our truckload segment and grow our volumes and network in our LTL segment, opening seven more locations during the quarter and building to 30% growth in daily shipments year over year in March. The LTL industry is not immune to the wait-and-see attitude dampening freight demand, but we are not expecting the same potential for volatility in LTL demand in the second quarter as we do for truckload. Also, our significant LTL network expansion over the past year positions us for differentiated growth.

We are confident that our experienced team, leadership alignment across our businesses, strong balance sheet, and our unique scale, diversified offerings, and value proposition will serve us well as we navigate the unfolding landscape. I will turn it over to Brad for our overview on slide three.

Brad Stewart (Treasurer and SVP of Investor Relations)

Thanks, Miller. The charts on slide three compare our consolidated first quarter revenue and earnings results on a year-over-year basis. Revenue, excluding fuel surcharge, increased by 1.2%, and our adjusted operating income improved by 68.2% for $35.1 million year-over-year. GAAP earnings per diluted share for the first quarter of 2025 were $0.19, and our adjusted EPS was $0.28. Our consolidated adjusted operating ratio was 94.7%, which was 210 basis points better prior year. Slide four illustrates the revenue and adjusted operating income for each of our segments for the quarter. Overall, our truckload, logistics, and intermodal segments all improved adjusted operating income and adjusted operating ratio year-over-year, while our ongoing growth in our LTL business is driving a growing portion of our consolidated revenue mix, reaching its highest share since our entry into the segment in 2021.

The first quarter continued to show the benefits of our diversified business model, as the seasonal pickup in our warehousing business helped to partially offset the early weather challenges and lack of seasonality late in the quarter in our truckload business. Now we will discuss our truckload segment on slide five. On a year-over-year basis, our truckload revenue, excluding fuel surcharge for the first quarter, decreased 4.2%, driven by a 5.4% decline in loaded miles, partially offset by a 1.5% increase in revenue per loaded mile excluding fuel surcharge. This was the first year-over-year increase in revenue per loaded mile in 10 quarters, which was achieved despite the spot market softening through the back half of the quarter. The improvement in realized rate, combined with a slight improvement in miles per tractor, drove a 1.9% year-over-year improvement in revenue excluding fuel surcharge per tractor.

The improvement in utilization marks seven consecutive quarters of year-over-year gains in this metric as we push to improve productivity and sell underutilized assets. As noted earlier, in March, we decided to tighten up our tractor fleet a little further alongside ongoing trailer ratio reductions in order to reduce operating costs over the next few quarters, but without going so far as to sacrifice our ability to respond to opportunities in the marketplace. Our cost per mile for the first quarter improved year-over-year for the third quarter in a row, despite the decline in miles. Modest improvements in asset utilization, cost per mile, and revenue per mile led to a 170 basis point year-over-year improvement in adjusted operating ratio and a 59.7% increase in adjusted operating income, even while revenue declined. We are pleased with the progress in the U.S.

Express truckload business, which, even in a difficult environment, reached a quarterly operating profit for the first time since our July 2023 acquisition. We are committed to disciplined pricing, intense cost control, and quality service as we position our business for the current volatility and for potential opportunities that may arise. Now I'll turn it over to Andrew for a discussion of our LTL business on slide six.

Andrew Hess (CFO)

Thanks, Brad. Good afternoon, everyone. Our LTL business grew revenue excluding fuel surcharge 26.7% year-over-year. Our shipments per day increased 24.2%, which includes our acquisition of DHE. Revenue per hundred weight excluding fuel surcharge increased 9.3% year-over-year, while weight per shipment declined 2.5% year-over-year. The adjusted operating ratio was 94.2%, and adjusted operating income declined 26.8% year-over-year due to weather challenges, which pressured volumes and costs early in the quarter, startup costs and early-stage operations at our recently opened facilities, as well as cost headwinds from inefficiencies in the DHE region, given our strategic commitment to maintaining service while rapidly growing shipment counts following a recent system integration. Operating margins and year-over-year volume growth improved each month of the quarter, reaching 30% growth in daily average shipments and an adjusted operating ratio of 90.6% in March.

Growth in shipment count was higher than our projections, which, coupled with our recent system integration, was a headwind to operational efficiency and costs as we leaned into outside maintenance, purchased transportation, and temporary labor to augment our own resources in the short term until we insource these services. The ramp in volume through the quarter and progress in bid awards are encouraging signs as we move forward and work to maintain high levels of service while optimizing operational efficiency. We are still experiencing steady rate increases in our business, and as our expanded network allows us to offer services on more lanes to new and existing customers. We opened seven new facilities and acquired or assumed leases on four more for our pipeline during the quarter.

Our pace of facility additions in 2025 should slow compared to 2024, but we will continue to look for both organic and inorganic opportunities to expand our footprint within the LTL market. We are focused on growing revenue and margins in 2025, and we're excited about the runway ahead of us. Slide seven covers our logistics segments. Logistics revenue increased 11.8% year-over-year as revenue per load increased 11.7% with load count flat. The adjusted operating ratio of 95.5% improved 160 basis points year-over-year. Our investments in a common platform across our logistics brands have allowed us to be more efficient in procuring capacity and winning freight opportunities direct from our customers.

Our power-only offering continues to build momentum and differentiate us from non-asset brokerages, and we remain focused on being nimble in order to remain profitable regardless of market conditions, while complementing our truckload brands and bringing value to our customers as an asset-based logistics provider. Now on to slide eight. Our intermodal business posted a year-over-year increase in revenue for the third quarter in a row. Revenue increased 3.5%, driven by a 4.6% increase in load count, partially offset by a 1.1% decrease in revenue per load every year. Improvement in volume and progress in operating costs and network balance overcame the decrease in revenue per load to improve the operating ratio by 360 basis points year-over-year. As tariff discussions began during the quarter, we saw the intermodal market begin to soften, which has led to a more competitive bid season.

We remain disciplined on pricing and focused on improving our network efficiency, reducing empty moves, insourcing a greater percentage of our trade moves, and investing in private chassis in certain markets in order to position its business profitability. On slide 10, we have outlined our—on slide nine illustrates all other segments. This category includes support services provided to our customers, independent contractors, and third-party carriers, such as equipment sales and rentals, equipment leasing, warehousing activities, insurance, and maintenance. For the quarter, revenue declined 15.9% year-over-year, largely as a result of winding down our third-party insurance business in the first quarter of last year. The $6 million operating income within all other segments is primarily driven by our warehousing and trailer leasing businesses, which saw some incremental activity beyond typical seasonality.

Operating income was also improved year-over-year because the prior year period included a $19.5 million operating loss for the third-party insurance business. Now on to slide 10, we have outlined our guidance and the key assumptions, which are also stated in the earnings release. Actual results may differ from our expectations. As Adam noted earlier, because of the significant uncertainty created by the current fluid trade policy situation and its implications for inflation, consumer demand, and demand from our customers, we are only updating our guidance for the second quarter, and we will not introduce guidance for the third quarter at this time. We plan to provide guidance for the third quarter when we report results for the second quarter, and we'll evaluate at that time whether enough clarity has developed to allow us to return to providing two forward quarters of earnings guidance.

Based on our assumptions, we project our adjusted EPS for the second quarter of 2025 will be in the range of $0.30-$0.38, which is an update from our original range of $0.46-$0.50. The key assumptions underpinning this guidance are listed on this slide, though I won't cover them in detail. In general, though, the guidance for the second quarter reflects the following outlook. At the top of the range, we assume volumes remain fairly steady, and we experience limited seasonality. The bottom of the range assumes a reduction in imports occurs in May and June and causes some deterioration in demand and an absence of seasonality. The stated assumptions generally reflect the middle of the range and are only applicable to the second quarter.

We project truckload operating income to improve sequentially, largely driven by modest improvement in revenue with a comparable margin profile to the first quarter. This assumes modest improvement in miles and utilization, while ongoing spot market softness serves to offset contractual rate progress made through bid activity. For LTL, we project seasonal improvement in volumes and ongoing progress growing our customer base and market share will support sequential improvement in revenue and operating margins. We also project relatively comparable contributions from our logistics and intermodal segments with their respective first quarter levels on a sequential basis. This concludes our prepared remarks, and before I turn it over for questions, I want to remind everyone to keep it to one question per participant. Thank you. Erin, we will now open the line for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Jonathan Chappell, Evercore ISI. Go ahead, please.

Jonathan Chappell (Analyst)

Adam, thanks for laying out the different scenarios that could transpire from here. If we add the gains of $15.5 million from Q1 and it looks like, call it $20 million for Q2 for the second quarter of equipment sales, is that a point where you think that you've right-sized the fleet for the kind of downside scenario? I guess what I'm getting at here is I know Brad said you're being very cognizant of not selling maybe to the bone, my terms, but how are you managing the kind of the very different paths and then the different cost levers that you can pull as you think about moving forward the next three months?

Adam Miller (CEO)

Yeah, I think when we look at our cost structure, I mean, we're going to look at every opportunity to be as tight as possible. When you look at your tractors and trailers, we have maybe a targeted trailer to tractor ratio that we would have unique to each business. I think today it would tell us that we still have opportunity to pull out trailers to kind of match up to the number of seated trucks we have versus the number of trailers we're operating. When we look at our tractor count, there's always some degree of tractors that you just have unseated where you don't have drivers operating the tractors. That's been a number that's been a bit elevated from our target.

We have made the choice to tighten that up and pull a few hundred tractors out of the network to just clean up any excess capital that we have that we are not utilizing today. That should drive better productivity when you look at miles per tractor in the total. It does not change our ability to respond to opportunities, to be flexible, to have capacity available. If we see a surge in drivers in a market that returns, we have flexibility to slow down what we pull out as we have new tractors that come in or could order more tractors if we really needed to. I mean, we have flexibility with that with the tractor count. In the meantime, with all the uncertainty, we have felt like let's just be a little bit tighter here.

Let's still get to a reasonable percentage where we're not limiting ourselves, a reasonable percentage of unseated trucks where we're not limiting ourselves to be able to hire drivers in markets where it makes sense, but let's not carry any excess costs in the meantime.

Jonathan Chappell (Analyst)

Got it. Thanks, Adam.

Adam Miller (CEO)

Yeah.

Operator (participant)

The next question comes from the line of Brian O'Neil, J.P. Morgan Chase. You may now ask your question.

Brian O'Neil (Analyst)

All right. Thanks very much. Maybe a question on LTL and filling in the density. When do you think you'll get a little bit more visibility to filling in some of those areas that you're trying to fill and maybe get rid of some of those additional costs that you're carrying right now to meet the service where you're not quite able to do so right now? If you can add a few thoughts on M&A and if there's anything that kind of fits the bill right now, or if we just should expect this to be a little bit more gradual of a process to fill in the rest of the coverage gap. Thank you.

Adam Miller (CEO)

Yeah. No, thanks for the question, Brian. You know the volume has been building nicely, and it's been relatively consistent. Like we've said before, as we've opened up these territories, we've been aggressive at doing so because it gives us the ability to participate in the bids that are now ongoing in the LTL industry. We are seeing the volumes build really on a weekly basis now that we've got out of some of the disruption from weather. We feel very encouraged about building that density and helping us with the cost absorption and really kind of taking advantage of the operating leverage that we really have in this business. We are able to take market share with maintaining price discipline. We're still seeing contractual renewals in the mid-single-digit range, and we're seeing volume growth at the same time.

It will just take time to do that in each market. There are still a few locations to add this year. We added seven in the first quarter. We probably have maybe nine or ten net adds. I think it is closer to nine in the back half of the year already planned. We could have more if there are some opportunities that come our way, and we feel good about the volumes building. I think first quarter just got off to a slower start than we had hoped, and you had some cost headwinds that we have been dealing with, but feel much better about where we ended in March and have felt that trend continue into April. We are feeling really good about LTL and are looking to see that volume continue to build.

To be able to do that, you have to give great service. We have done that at maybe the expense of margin in the near term because we believe that gives us an opportunity to build volume. The reaction from our customers has been very positive. They like having another option in some of the markets that we now serve, and we feel good about building that out. You asked about M&A. I think I have said on previous calls, we are always open to organic and inorganic opportunities to grow the business. I think it is more likely if M&A were to play a role in building out, particularly in the Northeast, that is probably a 2026 event, if anything. I do not expect that to happen in 2025.

This is a year where we kind of grow into the 37 locations that we grew organically last year, continued to integrate the DHE business that we acquired last year. This is a year of growing into what we have, improving our top line, as well as improving our margin profile in the business. We remain committed to getting to a national, to being a national carrier in this space, but we're going to do that very deliberately with some discipline. We think we have a lot of runway to grow top line and bottom line in 2025 without an acquisition.

Andrew Hess (CFO)

Brian, I'll just maybe add a little more color to what Adam said is we're continuing to be in a phase of investment. I think we're mostly, a lot of that's now absorbed into Q1. If you look at the cost that we brought into the business in Q1 compared to Q4, we brought a lot of fixed costs still into the business as we stood up those facilities. Costs on equipment, depreciation, rents, those are now largely in our baseline now, and we'll see some of that continuing. We mentioned we participated in some additional leases that we've assumed from the Yellow bid in Q1. Those costs are included in our financials, but those are locations that are open yet. There's still a lot of opportunity.

I guess what's encouraging is our volume, both revenue and shipment count, is absorbing that cost and helping us drive productivity, leveraging that business. As we've tracked, the things we're focused on are, first of all, driving improvement in our variable wage efficiency. We're seeing that as we look at where we were at in Q4 versus Q1. We're seeing that in our linehaul, in our P&D, and our dock efficiency. Certainly, as we moved our DHE business onto the same system as the rest of our business last quarter, there's been some time for them to develop that efficiency. We feel like we're starting to see those results. Second, we're managing our maintenance. As we move into new locations, we have to use a lot of outside maintenance.

That will get better as we build density and can insource a lot of that maintenance. The third is managing these fixed costs that the leverage of the business will provide. I think those are kind of some of the dynamics that you're seeing in the financials here. As we look at Q2, you can see we're guiding to a low 90s OR. I think it's our progress in each of these areas that are going to help get us there as well as the density that looks good. Even here in April, we feel good about the track we're on. They gave us confidence to increase the revenue guidance here in the second quarter from what we provided previously based on the encouraging signs we're seeing in the market.

Brian O'Neil (Analyst)

Okay. Thanks very much. Very helpful.

Adam Miller (CEO)

Thanks, Brian.

Operator (participant)

The next question comes from the line of Ken Hoexter, Bank of America. You may now ask your question.

Kenneth Hoexter (Analyst)

Hey, great. Good afternoon. If I can just jump back to the truckload sector, I guess you mentioned U.S. Xpress kind of getting to profitability. Maybe talk about some of the things you've done on the cost side. I guess, Adam, if we look at utilization, I think you were kind of addressing this before, but it used to be what, about 22,000-24,000 miles per tractor. Is that part of what you were talking about before getting rid of more assets to increase that utilization, or are there things you can still do in this uncertain market to increase asset utilization? Is it getting rid of assets faster? What do you think has to be done to improve that profitability?

Adam Miller (CEO)

Yeah. I think when you look at, I'll just touch on the productivity side, and maybe I'll turn it over to Andrew. He could talk about some of the things on the cost side with USX. I think part of the dynamic is just not carrying tractors that aren't producing revenue and aren't producing miles, right, because we didn't have the drivers that are seated in there. We might as well not carry that cost. We can now turn that into capital and sell it in what's been a relatively good used equipment market for tractors, at least, maybe not trailers. I think that's driven more from just scarcity of trucks in the market because of how many weren't built four or five years ago because of the supply chain challenges.

We wanted to take advantage of that and just tighten up our depreciation costs. That will lead to now having a similar number of miles over a reduced tractor count, which will drive, obviously, your miles per tractor up. I think that's one of the things, that's just one of the levers, Ken, that we think we can pull that does not impact top line. It does not impact the ability to respond to customer needs. Again, if we see the market turn around quickly and there are greater needs and we can hire the drivers, then we can slow down on what we pull out, and we can order more trucks if we need to.

We can be pretty nimble, and we can get new trucks pretty quickly, or we can hold on to some of our trucks without trading them when we have replacement trucks coming in if we need to be. We felt like that was a lever that we can pull that does not necessarily impact our business in a negative way. It just gives us the ability to be more efficient with existing tractors. Does that make sense?

Kenneth Hoexter (Analyst)

It does. It does. I guess I was trying to lead into the asset utilization. Sorry, I stopped midway through my question, but asset utilization into bid season, right? What does that? I guess I do not want to ask two questions, but I do not know if you could just throw one quick thought onto how bid season is progressing, just given where spot rates are.

Adam Miller (CEO)

All right. We'll let you slide that one in, Ken. Yeah. I think I mentioned this on our prepared remarks. The bid season started off, I think, just like we had thought. I think many customers kind of understood that contract rates did not have any room to go down and that you are just trying to manage what that increase is going to look like. We thought it would start low to mid-single digits and build some momentum as it progressed. It started off that way, but I think as we got into March, when we were kind of in the heart of the bid season, the slowdown because of just the uncertainty around tariffs maybe took away some of the momentum there for that to really build.

The renewals that we have are still increases, and they range in that low to mid-single digit range depending on the customer and the lane. There are some puts and takes. We have seen growth with customers who have seen the value that we bring. We have other customers who maybe are focused more on getting the lowest cost possible for the time being. We have seen some volume that we have lost. I think overall, we are faring pretty well. I think it is going to put us in a position where we can improve productivity on our seated trucks and see our contract rates take a step in the right direction. Like I mentioned, having a weaker spot market potentially here in the second quarter could weigh on our overall rate, but I believe that is temporary.

I think if we see the market come back, whether that be because of just continued consumer demand or we finally get to figure out our tariff policy and we have our customers with more conviction to move forward with their plans, we could see the spot market then improve, and we'll be in a good position to be able to react to that and bring value to our customers. There are a lot of moving pieces to it now, but I think ultimately, Ken, we do feel the bid season playing out to where it's going to help improve productivity at rates that are higher on a year-over-year basis. Maybe I'll let Andrew hit the U.S. Xpress question here.

Andrew Hess (CFO)

Yeah. You asked a little bit about what cost levers we have. Here's what I would say. Look, when we established our path to parity of U.S. Xpress to our truckload businesses, we thought about it in these three buckets. We still have the same conviction we always did on these points. First of all, we knew there was a lot of initial costs that we'll take out of the business. We've communicated that on that point, we've taken out more than $180 million of cost on an annualized basis. We're going to continue to find opportunities there. Those are costs around procurement and other areas where there was just efficiency to be gained. We've kind of done those in this difficult market. The second thing we're focusing on is operational cost efficiency. Think of firing costs, safety costs, fuel. We're well into that.

We had to establish the decentralized network of terminals that enables that model we know works at Knight and Swift into the U.S. Xpress business. We are starting to see that. Just as an example, safety takes a while to really build the safety culture that you need. We are starting to see that. Just as an example, our CSA crash rating is 20% better for that business than it was when we acquired them. We feel like there is a lot more to go. We are nowhere near kind of the potential of that business, but that starts to drive cost efficiencies into the business. The third area Adam focused on, which is on the market side.

We are seeing so far in bids, like he talked about, wins, rates that would exceed what we're seeing in the truckload business because of how much more opportunity they are to have there. We have the same conviction. We're something like five percentage points apart now on operating ratio between our legacy businesses and U.S. Xpress. We expect both of them to continue to progress from this point forward. We are encouraged because we are seeing the kind of systemic operational efficiencies that we knew that business could generate come to fruition.

Kenneth Hoexter (Analyst)

Thank you so much. Appreciate the time.

Operator (participant)

The next question comes from the line of Tom Wetherbee from UBS. You may now ask your question.

Tom Wetherbee (Analyst)

Yeah. Great. Good afternoon. Adam, I think it makes a lot of sense the way you laid out the guidance. Appreciate the perspective on it. I wanted to see if you could maybe comment a little bit further on how you think a step down in container imports into the West Coast in particular would potentially flow into your business. I mean, I think the numbers that seem to be out there, you could see 25-30% decline in West Coast container imports. At the low end of your range and kind of how it affects June, is that what you're assuming? I guess it's tough to have intuition with how that affects the truckload market, right? Because you've already seen weakness in truckload without a decline in imports in March. If you saw that, then I don't know.

How do we think about what that does to truckload? Thank you.

Adam Miller (CEO)

Yeah. I appreciate that, Tom. Yeah, I think there's still some uncertainty about how that's going to impact the truckload industry. I think what we're looking at is we're already assuming that May is going to be weaker as a result of the West Coast imports dropping off like everyone's expecting to. We have a lot of diversity when you look at our different brands. You look at U.S. Xpress, they're largely an East Coast player. We've got Barnum, Abilene. They're largely in the East Coast in terms of their presence. Knight and Swift, they would be nationwide, and they'd be pretty balanced between the East and West Coast, but would have some exposure to the West Coast. I think we could see an impact to those brands. Right now, we're working on plans to try to limit capacity in the markets we feel could be affected.

We may need to be a bit more nimble on the spot market to position ourselves to where we're not as exposed to the drop in freight, but that's easier said than done. I think there's an impact to the intermodal market. I think a lot of that freight could land on the rail. I think there's international boxes that you're not going to move, but then there's going to be, I think, an impact to our intermodal business, which is why I think our updated guidance has come down on where we think the load count will be for that business as intermodal has become pretty competitive on the price front.

We have made some progress in the bid, but in some cases, have had to turn away from some business because the pricing just did not make sense based on what our competitors were willing to run it on. There is going to be impact in really the Knight and Swift truckload brands mostly, and then in our intermodal business. We can kind of see that coming, and we are trying to react the best we can to it and not let it catch us by surprise. The question when you look at the guidance, Tom, is do you see a reaction in June where there is a rebound if we are able to get some clarity on trade policy? Our customers that are kind of living off inventory now have to replenish.

Do you see some seasonality in June that helps offset maybe some of the weakness, the kind of the unseasonable weakness you would see in May? I think that's really the question, how do things play out in June? We're already expecting May to be abnormal in terms of the volume you'd expect to see. Hey, how strong is beverage and produce, which usually helps carry a second quarter? Still a lot to, again, that's why we've had a wider range because there's a lot of ways that this could play out, but we're watching it really closely and trying to position ourselves to navigate it as well as we can.

Tom Wetherbee (Analyst)

Okay. Great. Makes sense. Thank you.

Adam Miller (CEO)

Yep.

Operator (participant)

The next question comes from the line of Scott Group from Wolfe Research. You may now ask your question.

Scott Group (Analyst)

Hey, thanks. Afternoon. I just want to clarify. Does the high end of the guide assume the normal May, June seasonal improvement we typically see or not? I just wasn't clear when you laid it out. Just bigger picture, Adam, you guys are right-sizing the tractor fleet. Makes sense. At some point, do you consider shrinking the power-only offering, the broader brokerage offering maybe to potentially try to help catalyze a tighter market?

Adam Miller (CEO)

Okay. Let me hit both those questions there, Scott. On the guidance, I think what we've said is the top end is really June with limited seasonality. Again, we normally do not say this, but I think when we were looking at our guidance, we were trying to have a degree of conservatism just given the risk that is out there, the potential for risk. We would assume just limited seasonality, not your normal strength that you would see in June. Does that make sense?

Scott Group (Analyst)

Yes.

Adam Miller (CEO)

Your question on power-only, I mean, we look at power-only as a way to really complement our truckload business. Even when you have some softer markets, there is always going to be markets where we do not have trucks available where our customers have demand. In some cases, those are customers that have drop-and-hook requirements when it comes to their freight. If we do not have power-only, we really cannot participate in those freight opportunities. There are also times when our logistics business is better suited for a certain business because it is maybe not as consistent. It does not create balance in your network, and you can still do that on the logistics front. We are managing trailers tightly, and we have to just manage that better even when we have power-only. We are really focused on that.

I look at power-only as a way to help support truckload, keep revenue in-house, support service, support our dedicated operation when they need a surge. We are not having to pull those trucks from line haul if they are needed elsewhere. I think it gives us a lot of flexibility in our network. We would look at that as an advantage that we would have, and it brings value to our customers and allows us to get better returns with the assets that we have.

Scott Group (Analyst)

Okay. Thank you for the perspective. Thanks, guys.

Adam Miller (CEO)

Yep.

Operator (participant)

The next question comes from the line of Daniel Imbro from Stephens. You may now ask your question.

Daniel Imbro (Analyst)

Yeah. Hey, good evening, guys. Thanks for taking the questions. I'm wanting to follow up on the cost per mile discussion within truckload, but maybe within the core business, not U.S. Xpress. The cost per mile declined again here in Q1. I guess, how do you feel about your ability to keep that flat to down for the full year, just given the softer demand backdrop could make utilization maybe harder to achieve? I know your Q2 guidance, I think, assumed relatively stable volumes here into April, but is there an opportunity to accelerate the cost takeout if volumes do deteriorate through the year? Just trying to get a sense for how variable that could be.

Andrew Hess (CFO)

Yeah. Hey, Daniel. I'll maybe make a few comments there. Like you mentioned, this is the third quarter we've reduced cost per mile, and this has been without the tailwind of miles, right? When you really look at where we're seeing that progress, that gives us the conviction it's sustainable. Let me just kind of break it down for you. Probably two-thirds of the improvement we're making from a cost per mile perspective comes because of operational improvements we've made in our business. That comes to how we manage fuel and maintenance and safety. Let me just talk about safety. Safety has been—we're seeing the same pressure everyone in the industry about nuclear verdicts and the cost of claims. Overall, our leading metrics around safety are very encouraging. In the case of the first quarter, our insurance costs are not inflationary to us.

We're managing those costs in a way that it's probably better than the industry on average. On maintenance and fuel, we're doing that as well. What we're seeing, though, is we're making a lot of progress on fixed costs. I'll maybe focus on some of the improvements we're making there. Now, it's hard to show that on a cost per mile basis because of the miles, your denominator changing. The cost that we've reset down in our overhead costs and G&A and equipment are significant. We're focusing on our facility footprint and how we manage our costs with our facilities. In some cases, we're consolidating drop yards or facilities. We've implemented process efficiencies in our back office labor that's allowed us to use attrition to manage down our non-driver headcount.

We've effectively negotiated with vendors on costs that have allowed us in areas like benefits to see what we believe are some savings coming up in our business. Our discretionary costs, we're managing those much more effectively than I think we have in the past. We are reducing costs or finding better ways, more efficient ways to manage IT costs, professional services, consulting, things like that, that we think we are a better, tighter organization. We will continue to do this. We're not done. We've seen results from this. What this is going to do, it's really going to work to our benefit going forward as we've introduced even more operating leverage into our business by reducing not just equipment, but our G&A and overhead costs in the business. We'll continue to pivot as we watch how this market unfolds.

We have a different playbook depending on kind of where the economy goes. We are thinking of scenarios and how we adjust costs to continue to drive cost per mile down even in an environment where miles are not helping us.

Adam Miller (CEO)

I think there's also opportunity. I don't know if you've touched on this, Andrew, on the safety and claims standpoint. I mean, we've seen our safety performance continue to improve. Now, clearly, the environment with nuclear verdicts is a challenge. You could have great performance, and one or two claims can really impact the results. I think we've done a great job kind of navigating that the last few quarters. We had some challenging claims to deal with over the last couple of years. We feel like we've got a lot of these more challenging claims behind us. Now we just have to execute better on not having incidents. When you do have those, being able to manage them and get to a favorable outcome as quick as possible.

I do think safety and claims is an area that we have some opportunities to improve just on execution and how we manage the claims.

Daniel Imbro (Analyst)

Great. Thanks so much, guys.

Operator (participant)

The next question comes from the line of Chris Weatherbee from Wells Fargo. You may now ask your question.

Chris Wetherbee (Analyst)

Hey, thanks. Good afternoon. Adam, I was curious to get your perspective on capacity in the truckload market, I guess, as you think about the next quarter, the next several months with potential weakness in May. Maybe there is a rebound in June, maybe there is not. Is that enough to sort of bring down capacity to the point where we are in a more balanced or more favorable truckload environment? I am kind of just curious how you are seeing capacity react real-time to these potential risks coming up from a demand perspective.

Adam Miller (CEO)

Yeah. I think certainly when you see activities that drive the spot market down, I mean, that's a catalyst for capacity to exit the markets. Now, is it going to be depending on the duration, is it enough for us to be back in balance? I think part of the balance is going to be if demand improves, then I think we would feel like we'd be in pretty good shape given what momentum we saw early in the first quarter and where we were in the fourth quarter. I think we've got to see how both supply and demand play out here in the near term. We look at different components of capacity and different ways to measure that on a regular basis.

One of the data points we look at is there's a large load board company that provides detail of how many trucks are being posted on their load boards. I think in March, it's down 28% on a year-over-year basis in March. That tells us supply or capacity continues to exit. I think it's still kind of hard to know what needs to happen for us to be back in balance. Certainly, the slowdown we're expecting to see in May is not going to help the small trucker.

Brad Stewart (Treasurer and SVP of Investor Relations)

Hey, Chris, this is Brad. I would just add a little color to that. Prior to this recent shift in the marketplace here in the first quarter with all the tariff uncertainty and everything, prior to that, especially in the fourth quarter and in the beginning of this year, the market was already behaving largely like a fairly balanced marketplace. It is not that we were still well out of balance and that we have got further to go. The market had largely gotten into a healthier balanced place before we had this little adjustment here recently. Certainly, if there is a leg down in demand, maybe we need more capacity rationalization to find a new level of balance. It is not like we were far off the mark just prior to this latest uncertainty here. Got it. Very helpful. Thank you.

Operator (participant)

The next question comes from the line of Ravi Shanker from Morgan Stanley. You may now ask your question.

Ravi Shanker (Analyst)

Hey, thanks. Good afternoon, guys. Just to confirm the overall message here, you said that the risk is to the downside, which is what made you change your approach to guidance, but you're also getting load-limiting related price increases. Are you hearing from your customers that they are pulling back or going into their shell a little bit, or is this just a reaction to some of the short-term data we're seeing out there? Obviously, the message on transports calls so far is that we haven't seen too much change in actual behaviors. I'm trying to see if you guys are seeing or hearing something different.

Adam Miller (CEO)

Yeah. I mean, we've had dialogue with, I don't know, 40 or 50 of our larger customers. They've been, for the most part, fairly open with what their strategy has been. It can change daily depending on what they're seeing in the market. I think probably about there's three buckets, probably, they fall into. Maybe a third are around, "Hey, we're just not making any changes because of tariffs, and we're just going to continue on our path forward." Those are maybe some of our customers that don't have maybe as much exposure to China. Then there's those that are more in a wait-and-see bucket. I think those are the customers that are maybe drawing down inventory more and living off that. That would impact the volume that we would be seeing or could be seeing in May.

There are some that have told us that, yeah, they've canceled orders or they've stopped ordering, particularly from China, and will figure out how to adjust their supply chain to avoid the cost. I think our conservativeness is really based on the feedback we're hearing from customers, as well as just some early trends we've seen with how they've maybe shifted or maybe have forecasted what their volumes are going to be in the coming weeks. It's not so much what we're seeing today. It's what we're expecting to see based on customer sentiment, as well as forecasts that we're seeing in our business.

Andrew Hess (CFO)

I would just clarify, as we talk to our customers on their view of consumer sentiment, very few seem to be changing behavior to a point, Ravi, because of their view of a weakened consumer at this point.

Ravi Shanker (Analyst)

Understood. Thank you.

Andrew Hess (CFO)

Strong. It seems to be a reaction to tariff costs as opposed to kind of a changing view on consumer sentiment right now.

Ravi Shanker (Analyst)

Understood. Thank you. Thanks, Ravi.

Operator (participant)

The next question comes from the line of Bascom Majors from Susquehanna. You may now ask your question.

Bascom Majors (Analyst)

Thanks for picking my questions. When will your bid discussions with your largest three or four retail industry customers be completed? When will those bid pricing updates be implemented? Ultimately, is the decision to withdraw the two-quarter forward guidance strategy, is that more about pricing and margin risk and forecasting that from those bids that are being discussed, or is it really more about what the macro and demand picture looks like two, three months from now? Thank you.

Adam Miller (CEO)

Okay. Bascom, so I'll hit that. Bids are kind of ongoing. Okay? I think we implemented some in the first quarter. I think the majority of them will hit sometime in the second quarter. You will have some of our larger customers that do some early third quarter. It is something that you are always doing on a regular basis, but your largest impact is typically going to be in the second quarter. We expect our contract rates to improve to that low to mid-single digit as we begin to implement these awards. There is also the mini-bid process that a lot of our customers go through on. Sometimes it is every two weeks. Sometimes it is weekly, where they have a set of lanes that they need help with for whatever reason, and we are able to bid on those lanes.

Sometimes you can get some sizable awards through the mini-bids. It is an ongoing process, and that is why your network is always, it is never in a static position. It is always adjusting and moving based on new awards that you are able to pick up through these processes. I think when we look at the guidance, it is more about the volume that you are going to receive from these awards because awards are paper commitments, right? There is no legal requirement for them to tender us those number of loads that we have won through the bid process. The concern is if they see a major change in their supply chain, do we not see the volume that we are expecting to see? What potential disruption could that have on your network?

I think that gives us the biggest, that's the biggest challenge, the forecast third quarter, not knowing if we're going to see some major disruption in whether it be volume or just the balance in our network. That is why we've decided to take the approach that we have.

Bascom Majors (Analyst)

Adam, to that point, where is bid compliance trending now versus what would be normal for this type of year? Has that loosened or deteriorated since that more normal seasonal environment you saw in January or February?

Adam Miller (CEO)

Again, we do not necessarily disclose that number, but it has not changed dramatically from where we have been. Again, we are more concerned about where that is going based on what we are seeing from the forecast from our customers and then external data. Again, April has been relatively stable, but where our conservative comes into is does May not play out like a normal May where you see strength, particularly in the back half as beverage and produce picks up? Is that just going to be offset with some of the supply chain pauses from our customers?

Bascom Majors (Analyst)

Thank you very much.

Operator (participant)

The next question comes from the line of Brandon Oglensky from Barclays. You may now ask your question.

Brandon Oglensky (Analyst)

Hey, good afternoon, everyone. Thanks for taking my question. Adam, I feel like you guys have been positioning the business here for a while for the inevitable upturn. Feels like maybe tariffs just pushed that out even more. I guess with this prolonged downturn and kind of trough or ease environment, is there anything strategically you've been thinking about through the portfolio approach on the TL side? Are there further cost efficiencies that you could look at there, maybe with all the brands or even thinking things about intermodal and lack of long-term profitability in that business? Appreciate the feedback.

Adam Miller (CEO)

Yeah. I mean, look, Andrew laid out all the different costs that we're focused on and we continue to be focused on. Again, we're all about controlling what we can control. When I look at our different brands, through this process, we've made adjustments on size of certain brands, what we focus on with those brands, what makes them unique to each other. Hey, you have to make adjustments in the market, and we have been doing so. We also do not want to make some decisions around businesses in kind of the trough of troughs, right? This has been the most challenging cycle that we've seen maybe ever. We want to see how some of these businesses navigate through that. I know you mentioned intermodal. Hey, we have a very good team in intermodal. We like the partnerships we have with the rails.

We've made year-over-year progress in many of the metrics over the last several quarters and expect to continue to make progress in that business. We believe it's a service our customers value. It's a lower-cost service that they would value at times. We want to be there to provide it. It has to generate returns. We want to see that business and how it performs when we get to a more balanced environment rather than making decisions in a trough environment. I don't think that would be advisable and not something that we would be considering at this point. If you get into a better environment and you have businesses that still can't perform in a better environment, then you look at that a bit differently. At this point, we like what brands we have.

We're making the adjustments on the cost side, as Andrew laid out. I think we'll be able to navigate the market that we'll be faced with and come out with these businesses returning to more normalized earnings when we get to a more balanced market. We still have tremendous confidence in that.

Brandon Oglensky (Analyst)

Thanks, Adam.

Adam Miller (CEO)

Okay. I think that concludes our call. We appreciate all the questions. Again, I know we have some folks in the queue. If we have not been able to get to your question, you can go ahead and reach out to us. It is 602-606-6349. All right. Thank you, everyone.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you so much for your participation. You have a great day.